AbbVie's $84,000 question

AbbVie has 84,000 reasons to believe that its new treatment for hepatitis C will be a blockbuster.

That's how many dollars pharma rival Gilead Sciences is charging for a 12-week regimen of Sovaldi, its new treatment for the potentially fatal liver disease. A cure rate of more than 90% is driving demand for the drug despite its lofty price tag, earning the Foster City, California-based company $2.3 billion in the first quarter.

Gilead's windfall is no doubt figuring into AbbVie's strategy for how it introduces its own treatment in the fourth quarter. AbbVie CEO Richard Gonzalez has said only that the North Chicago-based company's unnamed therapy intends to compete with Sovaldi on merit rather than price.

“When you look at the attributes of this product, the performance speaks for itself,” he told analysts in January. In trials of AbbVie's five-drug cocktail, cure rates have hovered in the mid-90s.

High prices also will help the company make up for the impending loss of revenue from Humira, the rheumatoid arthritis blockbuster that starts going off patent in 2016. The drug raked in 57% of AbbVie's $18.79 billion in sales in 2013.

Yet it remains unclear whether AbbVie will be able to keep prices high or be forced to offer discounts to private and public insurers that have paid for Sovaldi even as they grumble for a cheaper alternative.

Despite its effectiveness, AbbVie's therapy has some characteristics that could make it less attractive. The drug mixture requires multiple daily pills compared with one for Sovaldi, and it uses Norvir, an antiretroviral that can cause unwanted interactions with other drugs. Also, by the time it hits pharmacies, AbbVie may be facing off with Sovaldi's second iteration, a dual-drug combo that has performed well in eight-week trials.

“They have been making the case that they have produced very high efficacy rates,” says Seamus Levine-Wilkinson, a Burlington, Massachusetts-based pharma analyst at Decision Resources LLC. But now, “that's the price of entry into the hep C space.” Before Sovaldi, the best cure rates were in the 70s.

“Ten out of 10 doctors would pick Gilead in a cost-neutral environment,” says Mark Schoenebaum, the New York-based head of health care research at International Strategy & Investment Group LLC. “(Payers are arguing), 'If we get a discount for a less convenient drug, we're fine using the less convenient drug.' They need someone to play ball.”

AbbVie likely will set prices in line with Sovaldi initially, says Levine-Wilkinson, and it may be able to sustain it for a year or two, depending on how the market takes to its product. But that could change when other manufacturers such as Merck & Co. and Bristol-Myers Squibb Co. introduce their own therapies. It only takes one player to set off a price war, he says.

An estimated 150 million people worldwide are infected with hepatitis C. The bloodborne virus is spread through unsterile intravenous drug use, among other modes, and years can pass between infection and any sign of symptoms.

Sovaldi is seen as a game changer for more than its effectiveness. It's an oral therapy and, at least for some patients, can be administered without interferon, a protein with flu-like side effects.

AbbVie hasn't publicized revenue estimates for its new therapy, but analysts have been projecting roughly $800 million in sales for 2015, growing to more than $2 billion annually in the near term—blockbuster status in the pharma industry.

Price-tag pain

Meanwhile, some insurers already have felt the pain of outsized price tags for hepatitis C treatments. UnitedHealth Group in Minneapolis recently noted that Sovaldi's introduction in December resulted in a higher-than-expected $100 million bill in the first quarter.

The CEO of Express Scripts Holding Co., the country's largest pharmacy benefits manager, told Bloomberg News in December the company will pit Gilead against AbbVie and other competitors to get lower prices.

State Medicaid programs are still getting a handle on how they will cover Sovaldi, says Matt Salo, executive director of the Washington-based National Association of Medicaid Directors.

Drugs for rare diseases, with affected populations in the hundreds or thousands, typically command the highest prices. The key difference with hepatitis C: An estimated 3.2 million Americans carry the virus, according to the federal Centers for Disease Control and Prevention.

“It's a massive number of people times a very expensive product,” Salo says. “No matter what lens you look at it through, it's just not affordable.”

In Illinois, 186 Medicaid members have started using Sovaldi, an agency spokeswoman says. The state is paying the full freight for the drug and through April had paid $10.3 million, though it has asked Gilead for rebates. In fiscal 2013, the agency spent just $6.7 million on all hepatitis C drugs, the spokeswoman says.

Gonzalez knows how it feels to catch flak over drug pricing. He was president and chief operating officer of medical products at Abbott Labs in 2003, when the separate pharma division quintupled the U.S. wholesale price of Norvir, which also is used to treat HIV/AIDS. Protesters picketed Abbott's annual shareholder meeting and doctors boycotted the company's products.

AbbVie would not want to rehash that unfortunate chapter, in part because the ill will could damage sales of Humira.

“To screw that up and ruin what you've been investing in for the last decade doesn't make sense,” says F. Randy Vogenberg, a pharmacist and Greenville, South Carolina-based principle of the Institute for Integrated Healthcare. “They have more to lose than Gilead.”